UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2012
Summer Infant, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Commission file number 001-33346
Delaware |
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20-1994619 |
(State or Other Jurisdiction Of Incorporation or Organization) |
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(IRS Employer Identification Number) |
1275 Park East Drive |
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Woonsocket, RI 02895 |
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(401) 671-6550 |
(Address of principal executive offices and Zip Code) |
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(Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of April 30, 2012, there were 17,849,889 shares outstanding of the registrants Common Stock, $.0001 par value per share.
Summer Infant, Inc.
Form 10-Q
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Page Number |
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1 | ||
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Condensed Consolidated Balance Sheets March 31, 2012 (unaudited) and December 31, 2011 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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16 | ||
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17 | ||
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19 |
ITEM 1. Condensed Consolidated Financial Statements (unaudited)
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Note that all amounts presented in the table below are in thousands of US dollars except share amounts and par value amounts.
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Unaudited |
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March 31, |
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December 31, |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
1,706 |
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$ |
1,215 |
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Trade receivables, net of allowance for doubtful accounts |
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57,769 |
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47,670 |
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Inventory, net |
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47,851 |
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50,014 |
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Prepaids and other current assets |
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5,034 |
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4,095 |
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Deferred tax assets |
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265 |
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265 |
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TOTAL CURRENT ASSETS |
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112,625 |
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103,259 |
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Property and equipment, net |
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16,969 |
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17,682 |
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Goodwill |
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61,908 |
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61,908 |
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Other intangible assets, net |
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29,705 |
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30,045 |
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Other assets |
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4 |
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21 |
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TOTAL ASSETS |
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$ |
221,211 |
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$ |
212,915 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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$ |
40,584 |
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$ |
40,633 |
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Current portion of long term debt |
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707 |
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736 |
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TOTAL CURRENT LIABILITIES |
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41,291 |
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41,369 |
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Long term debt, less current portion |
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68,613 |
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62,479 |
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Other liabilities |
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3,650 |
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3,726 |
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Deferred tax liabilities |
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11,437 |
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11,439 |
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TOTAL LIABILITIES |
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124,991 |
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119,013 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS EQUITY |
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Common Stock $.0001 par value, issued and outstanding 17,849,889 and 17,849,889 respectively |
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2 |
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2 |
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Treasury Stock at cost (141,134 shares at December 31, 2011) |
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(956 |
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(956 |
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Additional paid in capital |
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71,893 |
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71,158 |
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Retained earnings |
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25,623 |
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24,301 |
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Accumulated other comprehensive income (loss) |
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(342 |
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(603 |
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TOTAL STOCKHOLDERS EQUITY |
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96,220 |
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93,902 |
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
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$ |
221,211 |
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$ |
212,915 |
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See notes to condensed consolidated financial statements
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Note that all amounts presented in the table below are in thousands of US dollars except share and per share amounts.
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Unaudited |
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For the three months ended |
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March 31, |
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March 31, |
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Net revenues |
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$ |
62,999 |
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$ |
58,456 |
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Cost of goods sold |
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41,894 |
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38,780 |
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Gross profit |
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21,105 |
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19,676 |
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Selling, general and administrative expenses |
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16,648 |
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16,067 |
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Depreciation and amortization |
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1,875 |
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1,526 |
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Operating income |
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2,582 |
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2,083 |
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Interest expense, net |
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(720 |
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(552 |
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Income before provision for income taxes |
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1,862 |
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1,531 |
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Provision for income taxes |
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540 |
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368 |
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NET INCOME |
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$ |
1,322 |
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$ |
1,163 |
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Net income per share: |
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BASIC |
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$ |
0.07 |
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$ |
0.07 |
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DILUTED |
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$ |
0.07 |
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$ |
0.07 |
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Weighted average shares outstanding: |
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BASIC |
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17,750,165 |
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15,877,478 |
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DILUTED |
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17,976,634 |
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16,780,223 |
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See notes to condensed consolidated financial statements.
Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statement of Comprehensive Income
Note that all amounts presented in the table below are in thousands of US dollars.
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Three Months Ended |
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2012 |
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2011 |
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Net Income |
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$ |
1,322 |
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$ |
1,163 |
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Comprehensive income: |
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Changes in foreign currency translation adjustments |
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(103 |
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244 |
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Comprehensive income |
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1,219 |
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1,407 |
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Summer Infant, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Note that all amounts presented in the table below are in thousands of US dollars.
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Unaudited |
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For the three months ended |
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March 31, |
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March 31, |
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Cash flows from operating activities: |
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Net income |
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$ |
1,322 |
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$ |
1,163 |
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Adjustments to reconcile net income to net cash used in operating activities |
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Depreciation and amortization |
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1,875 |
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1,531 |
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Stock-based compensation expense |
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259 |
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177 |
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Change in value of interest rate swap agreements |
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(47 |
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(94 |
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Changes in assets and liabilities net of effects of acquisitions: |
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Increase in trade receivables |
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(9,828 |
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(1,854 |
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Decrease in inventory |
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2,530 |
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4,484 |
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Increase in prepaids and other assets |
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(889 |
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(1,049 |
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Decrease in accounts payable and accrued expenses |
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(271 |
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(8,917 |
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Net cash used in operating activities |
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(5,049 |
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(4,559 |
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Cash flows from investing activities: |
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Acquisitions of property and equipment |
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(811 |
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(718 |
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Acquisitions, net of cash acquired |
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(13,077 |
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Net cash used in investing activities |
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(811 |
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(13,795 |
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Cash flows from financing activities: |
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Issuance of common stock upon exercise of stock options |
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476 |
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968 |
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Net borrowings on line of credit and other debt |
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6,073 |
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16,472 |
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Net cash provided by financing activities |
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6,549 |
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17,440 |
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Effect of exchange rate changes on cash and cash equivalents |
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(198 |
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192 |
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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491 |
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(722 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
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1,215 |
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1,138 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
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$ |
1,706 |
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$ |
416 |
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Cash paid for interest |
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$ |
647 |
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$ |
650 |
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Cash paid for income taxes |
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$ |
3 |
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$ |
70 |
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Issuance of common stock in conjunction with Acquisition of Born Free |
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$ |
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$ |
11,000 |
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SUMMER INFANT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands of US dollars)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying interim condensed consolidated financial statements of Summer Infant, Inc. (the Company or Summer) are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods. Accordingly, they do not include all information and notes required by generally accepted accounting principles in the United States of America (GAAP) for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year or any other period. The balance sheet at December 31, 2011 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the Companys consolidated financial statements and notes for the year ended December 31, 2011 filed on Form 10-K on February 29, 2012.
All significant intercompany accounts and transactions have been eliminated in the condensed consolidated financial statements. All dollar amounts in the notes to the financial statements are in thousands of US dollars.
Income Taxes
The provision for income taxes is based on the Companys estimated annualized effective tax rate for the year. The Company does not provide U.S. tax on certain foreign earnings considered permanently invested.
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carry forwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence it is more likely than not such benefits will be realized. The Company recognizes interest and penalties, if any, related to uncertain tax positions in selling, general and administrative expenses. No interest and penalties related to uncertain tax positions were accrued at March 31, 2012. The tax years 2008 through 2011 remain open to examination by the major taxing jurisdictions in which the Company operates.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
Net Income Per Share
Basic earnings per share for the Company are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share includes the dilutive impact of outstanding stock options and unvested restricted shares.
Translation of Foreign Currencies
All assets and liabilities of the Companys foreign affiliates, whose functional currency is not U.S. dollars, are translated into U.S. dollars at the exchange rate in effect at the end of the quarter and the income and expense accounts of these affiliates have been translated at average rates prevailing during each respective quarter. Resulting translation adjustments are made to a separate component of stockholders equity within accumulated other comprehensive loss.
Recently Issued Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (FASB) issued an amendment to the accounting guidance for goodwill to simplify how companies test goodwill for impairment. The amendment permits an entity to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The amendment is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this accounting pronouncement did not have a material impact on our financial statements and we do not expect it to have a material impact on our annual goodwill impairment assessment in the fourth quarter of 2012.
In June 2011, the FASB issued an amendment to the accounting guidance for presentation of comprehensive income. Under the amended guidance, an entity may present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In either case, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. For public companies, the amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and shall be applied retrospectively. Other than a change in presentation, the implementation of this accounting pronouncement did not have a material impact on our financial statements.
In May 2011, the FASB issued an amendment to the accounting guidance for fair value measurement and disclosure. Among other things, the guidance expands the disclosure requirements around fair value measurements categorized in Level 3 of the fair value hierarchy and requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial position but whose fair value must be disclosed. It also clarifies and expands upon existing requirements for measurement of the fair value of financial assets and liabilities as well as instruments classified in shareholders equity. The guidance is effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting pronouncement did not have a material impact on our financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.
2. ACQUISITION OF BORN FREE
On March 24, 2011, the Company acquired all of the capital stock of Born Free Holdings Ltd. (Born Free) pursuant to the terms and conditions of a Stock Purchase Agreement (the Purchase Agreement) by and among the Company, its wholly owned subsidiary Summer Infant (USA), Inc., Born Free and the stockholders of Born Free. The aggregate consideration paid by the Company to the Born Free stockholders at closing was $23,567 (subject to adjustment), consisting of $13,960 in cash and approximately $10,607 in shares of the Companys common stock, or 1,510,989 shares based on a price per share of $7.02 (the closing price on the date of acquisition). In addition, the Born Free stockholders may receive earn-out payments upon achievement of certain financial targets over the twelve months subsequent to the acquisition up to a maximum amount of $13,000, of which up to $6,500 may be paid in shares of the Companys common stock (or 925,926 shares based on a price per share of $7.02). A portion of the shares issued at closing was, and, if achieved, a portion of the earn-out payments will be, deposited in escrow for a period of 18 months as security for any breach of the representations, warranties and covenants of Born Free and the Born Free stockholders contained in the Purchase Agreement. On September 30, 2011 the Company received $1,000 in common stock from the Born Free escrow account due to a preliminary net asset adjustment as defined in the Purchase Agreement. This is accounted for on the balance sheet through an increase in acquired accrued liabilities by $1,000, and increasing treasury stock by $956 and goodwill by $44.
The results of operations of Born Free are included in the results of the Company from the date of acquisition forward. Related deal costs were expensed in the 2011 statement of operations.
Under the purchase method of accounting, the total purchase price for Born Free has been assigned to the net tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Approximately $16,400 and $11,532 were assigned to certain intangible assets and goodwill, respectively, based on independent valuations received by the Company. In addition, the estimated fair value of the contingent earn-out has been valued at zero as of December 31, 2011 and March 31, 2012 based on the Companys best estimate of the earn-out computation. The acquisition has been recorded as of the closing date, reflecting the assets and liabilities of Born Free (the target), at their acquisition date fair values. Intangible assets that are identifiable are recognized separately from goodwill which is measured and recognized as the excess of the fair value of Born Free, as a whole, over the net amount of the recognized identifiable assets acquired and liabilities assumed.
The acquisition accounting was finalized during the fourth quarter of 2011.
Calculation of assignment consideration:
Cash |
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$ |
13,960 |
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Stock |
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9,607 |
* | |
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Actual Consideration |
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$ |
23,567 |
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Assignment of consideration among assets acquired and liabilities assumed as of March 24, 2011:
Trade receivables |
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$ |
2,226 |
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Inventory |
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2,595 |
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Property and equipment, net |
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53 |
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Brand name |
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11,800 |
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Customer relationship |
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4,600 |
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Accounts payable and other accrued liabilities |
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(5,176 |
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Deferred tax liability |
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(4,063 |
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Goodwill |
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11,532 |
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Total assigned purchase price |
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$ |
23,567 |
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* The stock portion of the acquisition consists of 1,369,855 shares at a price per share of $7.02 which reflects the preliminary net asset adjustment explained above.
The pro forma effect on net revenues, earnings, and earnings per share amounts for the three months ended March 31, 2012 and 2011, assuming the Born Free transaction had closed on January 1, 2011, are as follows:
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Three Months Ended |
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Actual |
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Proforma |
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2012 |
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2011 |
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Net Revenues |
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$ |
62,999 |
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$ |
61,929 |
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Net Income |
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1,322 |
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70 |
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Earnings per share |
|
$ |
0.07 |
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$ |
0.00 |
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3. DEBT
Credit Facility
In August 2010, the Company and its subsidiaries entered into a secured credit facility with Bank of America, N.A., as Administrative Agent, and each of the financial institutions as a signatory to the agreement. The agreement was subsequently amended on March 24, 2011, November 9, 2011 and, as described below, on May 11,
2012 (as amended, the Loan Agreement). The Loan Agreement provides for an $80,000 working capital revolving credit facility. The amounts outstanding under the revolving credit facility are payable in full upon maturity and the credit facility matures on December 31, 2013. The credit facility is secured by substantially all of the assets of the Company. The amount outstanding on the credit facility at March 31, 2012 was $68,250; our capacity was approximately $71,800.
On May 11, 2012, the Company entered into an amendment (the 2012 Amendment) that revised the Companys financial covenants and extended the maturity date an additional six months to December 31, 2013. In addition, the prior $20,000 accordion feature was removed and two additional pricing tiers based on the leverage covenant performance were added. The 2012 Amendment is described in more detail in Item 5 of Part II of this report.
Aggregate maturities of long term debt related to this note are as follows:
Year ending December 31: |
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2012 |
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$ |
0 |
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2013 |
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68,250 |
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Total |
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$ |
68,250 |
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The Companys ability to borrow under the Loan Agreement is subject to its ongoing compliance with certain financial covenants, as revised in the 2012 Amendment, including that (a) the Company and its subsidiaries maintain and earn on a consolidated basis as of the last day of each fiscal quarter, consolidated EBITDA (as defined in the Loan Agreement) for the twelve month period ending on such date equal to or greater than $17,500 beginning with the quarter ending June 30, 2012 and increasing over the remaining term of the Loan Agreement to $23,000 for each quarter ending on or after June 30, 2013; (b) the Company and its subsidiaries maintain a ratio of consolidated total funded debt to consolidated EBITDA of not greater than (i) 4.25:1.00 on June 30, 2012, (ii) 3.75:1.00 on September 30, 2012, (iii) 3.50:1.00 on December 31, 2012, and (iv) 3.25:1.00 on March 31, 2013 and thereafter; and (c) the Company and its subsidiaries maintain a fixed charge ratio of at least 1.50:1.00. Also in connection with the 2012 Amendment, the Bank waived certain events of default that existed on March 31, 2012.
The Loan Agreement allows the Company to borrow under the credit facility at LIBOR or at a base rate, plus applicable margins based on the funded debt to EBITDA leverage ratio for the most recent twelve month rolling quarter end. Applicable margins vary between a 200 to 375 basis point spread over LIBOR and between a zero to 175 basis point spread on base rate loans. The Company has also entered into various interest rate swap agreements which effectively fix the interest rates on a portion of the outstanding debt, of which, one is still active at March 31, 2012. As of March 31, 2012, the rate on these credit facility dates averaged 4.03%. In addition, the credit facility has an unused line fee based on the unused amount of the credit facility equal to 25 basis points.
The Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision. In the event of a default, all of the obligations of the Company and its subsidiaries under the Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
The Company believes that it will be able to meet the financial covenants set forth in its Loan Agreement as amended by the 2012 Amendment and will have sufficient working capital available to it under the Loan Agreement to meet its cyclical operational cash flow needs.
4. FAIR VALUE MEASUREMENTS
The standard regarding fair value which establishes a new framework for measuring fair value and expands related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. The standard established a three-level valuation hierarchy based upon observable and non-observable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Companys market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1Quoted prices for identical instruments in active markets.
Level 2Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3Significant inputs to the valuation model are unobservable.
The Company maintains policies and procedures to value instruments using the best and most relevant data available. In addition, the Company utilizes risk management resources that review valuation, including independent price validation. Management concludes there has been no material change in the Companys credit risk nor that of Bank of America and therefore the valuation of the liability is reasonable.
The Company recognizes the fair value of interest rate swaps using Level 2 inputs.
As of March 31, 2012 the fair value of the swap now reflects a liability of approximately $41, which is included in other liabilities on the accompanying balance sheet. The change in fair value of the swap liability is recorded in interest expense, net. The interest rate swap is not accounted for as a hedge.
The notional amount under the interest rate swap agreement totals, $3,491, which is approximately 5.12% of the Companys total outstanding bank debt at March 31, 2012.
5. DERIVATIVE INSTRUMENTS
The Company is exposed to interest rate risk primarily through its borrowing activities. The Companys long-term debt is a variable rate instrument. The Company holds one interest rate swap contract at March 31, 2012 under which the Company agreed to pay an amount equal to a specified fixed rate of interest times a notional principal amount, and to in turn receive an amount equal to a specified variable rate of interest times the same notional principal amount.
The Company is required under its Loan Agreement, to mitigate fluctuations in interest rates through the use of derivatives. As a matter of policy, the Company does not use derivatives for speculative purposes.
The interest rate swap contract requires payment of a fixed rate of interest and the receipt of a variable rate of interest at the LIBOR one month index rate plus 150-200 basis points on a notional amount of indebtedness.
|
|
Rate |
|
Notional Amount |
|
Effective Date |
|
Maturity Date |
|
Fair Value |
| |
Swap 1 |
|
7.06 |
% |
3,491 |
|
6/21/2007 |
|
6/7/2012 |
|
$ |
(41 |
) |
6. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is a party to routine litigation and administrative complaints incidental to its business. Management does not believe that the resolution of any or all of such routine litigation and administrative complaints is likely to have a material adverse effect on the Companys financial condition or results of operations.
7. STOCK OPTIONS AND RESTRICTED SHARES
The Company has granted stock-based awards under its 2006 Performance Equity Plan (2006 Plan). Under the 2006 Plan, awards may be granted to participants in the form of Non-Qualified Stock Options, Incentive Stock Options, Restricted Stock, Deferred Stock, Stock Reload Options and other stock-based awards. Subject to the provisions of the 2006 Plan, awards may be granted to employees, officers, directors, advisors and consultants who are deemed to have rendered or are able to render significant services to the Company and who are deemed to have contributed or to have the potential to contribute to the Companys success. The Company has issued both stock options and restricted shares to employees and board members.
Share-based compensation expense for the three months ended March 31, 2012 and 2011 was approximately $259 and $177, respectively. As of March 31, 2012, there were 1,444,000 stock options outstanding and 104,000 unvested restricted shares outstanding.
During the three months ended March 31, 2012, the Company granted 8,000 stock options. The key assumptions used in determining the valuation included:
· |
|
Expected life |
- |
6 years |
· |
|
Volatility |
- |
55% |
· |
|
Discount rate |
- |
1.71% |
8. SUBSEQUENT EVENTS
On May 11, 2012, the Company amended its Loan Agreement (the 2012 Amendment). As a result of the 2012 Amendment, revisions were made to certain of the Companys financial covenants as described in the Note 3. Debt above. The Company has evaluated subsequent events through the filing date of this Quarterly Report and, other than the 2012 Amendment, determined that no additional subsequent events occurred that would require recognition in the consolidated financial statements or disclosure in the notes thereto.
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking information and statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding our expectations, intentions, or strategies regarding future matters. All forward-looking statements included in this document are based on information available to us on the date hereof. It is important to note that our actual results could differ materially from those projected in such forward-looking statements contained in this Form 10-Q. These forward-looking statements include statements regarding our ability to grow our business through developing new products, obtaining new customers, increasing our sales territory, and making strategic acquisitions, expected results in 2012, and our anticipated cash flow for the next 12 months. These statements are based on current expectations that involve numerous risks and uncertainties. These risks and uncertainties include the Companys ability to integrate acquired businesses, the concentration of the Companys business with retail customers; the ability of the Company to compete in the industry; the Companys dependence on key personnel; the Companys reliance on foreign suppliers; the Companys ability to meet its debt covenants; and other risks as detailed in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and subsequent filings with the Securities and Exchange Commission. All these matters are difficult or impossible to predict accurately, many of which may be beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Form 10-Q will prove to be accurate.
The information contained in this section has been derived from the Companys consolidated financial statements and should be read together with the consolidated financial statements and related notes included elsewhere in this filing and with the consolidated financial statements for the year ended December 31, 2011 appearing in our Annual Report on Form 10-K. All dollar amounts in the following section are in thousands of US dollars.
The following discussion is intended to assist in the assessment of significant changes and trends related to the results of operations and financial condition of Summer Infant, Inc. and its consolidated subsidiaries. This discussion and analysis should be read in conjunction with the Companys consolidated financial statements and notes thereto included herein.
Summary of critical accounting policies and estimates
The Companys critical accounting policies are disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to these policies during the first three months of 2012. The policies noted below are presented to assist in understanding the consolidated financial statements appearing in this report. The consolidated financial statements and notes are representations of management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (GAAP) and have been consistently applied in the preparation of the consolidated financial statements.
Management of the Company is required to make certain estimates and assumptions during the preparation of our consolidated financial statements that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The accounting policies described below are those that management considers critical in preparing the Companys financial statements. Some of these policies include significant estimates made by management using information available at the time the estimates were made. The Companys significant accounting estimates have historically been and are expected to remain reasonably accurate, but actual results could differ materially from those estimates under different assumptions or conditions.
Sales
Our sales are primarily derived from the sale of juvenile health, safety and wellness products and are recognized upon transfer of title of product to our customers. Our products are marketed through several distribution channels including mass merchant retailers, independent specialty retailers, on-line retailers and direct to consumers. There are not significant variations in seasonal demand for our products.
Over 90% of sales are currently made to customers in North America, with remaining sales primarily made to customers in the United Kingdom. Sales are made utilizing standard credit terms of 30 to 60 days. We generally accept returns only for defective merchandise.
Cost of goods sold and other expenses
Our products are manufactured by third parties, principally located in Asia, with approximately 90% of the manufactured cost dollar value occurring in that region. The majority of the balance of our products are manufactured in the United States. Cost of goods sold primarily represents purchases of finished products from these third party manufacturers. The remainder of our cost of goods sold includes duties on certain imported items, freight-in from suppliers and miscellaneous charges from contract manufacturers. Substantially all of our purchases are made in US dollars; therefore, most of this activity is not subject to currency fluctuations. If our suppliers experience increased raw materials, labor or other costs and pass along such cost increases through higher prices for finished goods, our costs of sales would increase, and to the extent we are unable to pass such price increases along to our customers, our gross margins would decrease, and therefore, adversely affect our profitability.
Selling, general and administrative expenses
Selling, general and administrative expenses primarily consist of payroll, insurance, professional fees, royalties, freight out to customers, product development costs, advertising and marketing expenses (including co-op advertising allowances as negotiated with certain customers) and sales commissions. Several of these items fluctuate with volume based on sales to particular customers and or sales of particular products.
Company Overview
We are a designer, marketer, and distributor of branded juvenile health, safety and wellness products (for ages 0-3 years) which are sold principally to large North American and United Kingdom retailers. We currently market products in various product categories including nursery audio/video monitors, safety gates, durable bath products, bed rails, nursery products, booster and potty seats, bouncers, travel accessories, high chairs, swings, feeding products, car seats, and nursery furniture. Our business has grown organically in all our markets. Our revenue is driven by our ability to design and market desirable products, identify business opportunities and secure new and renew existing distribution channels. Our income from operations is derived from our ability to generate revenue and collect cash in excess of labor and other cost of providing our product and selling, general and administrative costs.
Our strategy is to grow our sales through a variety of methods, including:
· increased product penetration (more products at each store);
· increased store penetration (more stores within each retail customer);
· new products (at existing and new customers);
· new mass merchant retail customers;
· new distribution channels (food and drug chains, price clubs, home centers, and web-based retailers);
· new geographies (international expansion);
· new product categories; and
· acquisitions.
We have has been able to grow our annual revenues historically through a combination of all of the above factors. Each year we have been able to expand the number of products in our main distribution channel, (mass merchant retailers) and have also added new customers each year.
For 2012 and beyond, our growth strategy will be to continue to develop and sell new products to our existing customer base, sell new and existing products to new customers (or expand relationships with existing customers), and to expand in the United Kingdom and in other geographic regions (including Japan, Mexico and Australia, among others).
In addition, in the past we have pursued and we expect to continue to pursue potential acquisition candidates to obtain new innovative products, acquire product categories in which we currently do not participate, gain shelf space by adding retail customers or expand distribution with the addition of new sales territories.
As we continue to grow through internal initiatives and potential future acquisitions, we will incur additional expenses. Two of the key areas in which such increased expenses will likely occur are sales and product development. To grow sales, we will likely hire additional sales personnel to service new geographic territories, focus existing resources on specific parts of the United States market and retain product line specialists to drive sales of new and existing products in specific areas in which we believe we can readily increase sales. Product development expenses are expected to increase as we develop new products in existing and new categories. As a result of our acquisition strategy, we will face various challenges such as the integration of the acquired companies product lines, employees, marketing requirements and information systems. Ongoing infrastructure investment may be required to support realized growth, including expenditures with respect to upgraded and expanded information systems and enhancing the Companys management team.
Recent Developments
As further described in Item 5 of Part II of this report and in the Liquidity and Capital Resources section below, on May 11, 2012, we entered into an amendment to our existing credit facility with our senior lenders. Among other things, this amendment extended the maturity date of loans under the agreement to December 31, 2013 and revised financial covenants with which the Company must comply during the term of the agreement.
Outlook
Our business, financial condition and results of operations have and may continue to be affected by various economic factors. We expect the retail environment in the second quarter of 2012 to remain challenging due to a heightened promotional environment. We believe we have a sound plan in place for 2012 to achieve our goals, which includes the introduction of our new PEEK monitoring system, the re-launch of our PRODIGY car seat and travel system, and other new product initiatives and marketing programs, as well as initiatives to expand our gross margins in the second half of 2012 through price increases and product cost improvements. Although other factors will likely impact us, including some we do not foresee and those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011, we believe our performance in 2012 may be affected by the following:
· Economic Climate. Periods of global economic uncertainty, such as the recession experienced in 2008 and much of 2009, as well as recent market disruptions, can lead to reduced consumer and business spending. The current economic climate continues to affect our business in direct and indirect ways, including reduced consumer demand for our products, tighter inventory management by retailers, reduced profit margins due to pricing pressures and a sales mix favoring lower margin products. In addition, reduced access to credit has and may continue to adversely affect consumers who desire to purchase our products from retailers and the ability of our own customers to pay us. A continuing decline in U.S. birth rates, attributable in part to recent economic conditions, could also contribute to lower sales of our products.
· Retail Market Conditions. Our industry is very competitive, with increasing pressure from mass merchant retailers on pricing in reaction to perceived lack of consumer confidence. These customers continue to seek favorable pricing from us and we expect this trend will continue in 2012. As a result, we expect continued pricing pressures throughout 2012. We are addressing the difficult retail environment by increasing prices and making product cost improvements, among other things.
· Debt Financing. In May 2012, we amended our existing credit facility to extend the maturity date of loans under that agreement to December 31, 2013 and also to modify financial covenants under that agreement. As of March 31, 2012, we had an outstanding principal balance of approximately $68.3 million under the agreement. Because part of our cash flow must go to interest payments on our existing indebtedness, the amount of available cash for working capital, capital expenditures, acquisitions and other general corporate purposes may be limited.
Results of Operations
Condensed Consolidated Statements of Income
For the Three Months Ending March 31, 2012 and 2011
(Unaudited)
|
|
For the three months ended |
| ||||
|
|
March 31, 2012 |
|
March 31, 2011 |
| ||
Net revenues |
|
$ |
62,999 |
|
$ |
58,456 |
|
Cost of goods sold |
|
41,894 |
|
38,780 |
| ||
Gross profit |
|
21,105 |
|
19,676 |
| ||
Selling, general and administrative expenses |
|
16,648 |
|
16,067 |
| ||
Depreciation and amortization |
|
1,875 |
|
1,526 |
| ||
Operating income |
|
2,582 |
|
2,083 |
| ||
Interest expense, net |
|
(720 |
) |
(552 |
) | ||
Income before provision for income taxes |
|
1,862 |
|
1,531 |
| ||
Income tax expense |
|
540 |
|
368 |
| ||
NET INCOME |
|
$ |
1,322 |
|
$ |
1,163 |
|
Three months ended March 31, 2012 compared with three months ended March 31, 2011
Net revenues increased 7.8% from approximately $58,456 for the three months ended March 31, 2011 to approximately $62,999 for the three months ended March 31, 2012. This sales increase was primarily attributable to sales within the feeding products category under the Born Free brand acquired in March 2011.
Gross profit increased 7.3% from approximately $19,676 for the three months ended March 31, 2011 to approximately $21,105 for the three months ended March 31, 2012. The gross profit as a percentage of sales decreased to 33.5% from 33.7% in the prior year. The decrease as a percentage of sales is primarily due to higher costs of finished goods from the Companys vendors in Asia and the United States, in addition to an increased sales mix of lower margin products and customer markdown activity.
Selling, general and administrative expenses (excluding depreciation and amortization) increased from approximately $15,255 (26.1%) for the three months ended March 31, 2011 to approximately $16,389 (26.0%) for the three months ended March 31, 2012. This increase was primarily attributable to increases in headcount, higher variable selling expenses due to the increase in sales, increased promotional costs, and costs associated with new product development.
Liquidity and Capital Resources
Our principal sources of liquidity are generated from cash flow from operations and borrowings from availability under our bank credit facility. Cash flow from operations and borrowings under our credit facility are expected to be sufficient to fund the Companys operating and capital requirement needs for at least the next twelve months.
Our sales have increased significantly over the past several years. This sales growth has led to a substantial increase in working capital requirements, specifically trade receivables and inventory. The typical cash flow cycle is as follows:
· Inventory is purchased to meet expected demand plus a safety stock. Because the majority of our vendors are based in Asia, inventory takes from four to six weeks to arrive from Asia to the various distribution points we maintain in the United States, Canada and the United Kingdom. Payment terms for these vendors are approximately 30-60 days from the date the product ships from Asia, therefore, we are generally paying for the product a short time after it is physically received in the United States, Canada and the United
Kingdom. The increased sales we have experienced result in the requirement for increased levels of inventory purchases, and therefore an increase in the amount of cash required to fund our inventory level.
· Sales to customers generally have payment terms of 60 days. The increased sales have resulted in an increase in the level of accounts receivable, and therefore have increased the amount of cash required to fund working capital.
We have traditionally been able to fund our increased working capital needs utilizing the credit facility under the Loan Agreement with our banks.
The majority of our capital expenditures are for tools related to new product introductions. We receive indications from retailers generally around the middle of each year related to product orders they will be taking for the upcoming year. Based on these indications, we will then place tooling capital orders required to build the products. In most cases, the payments for the tools are amortized over a three to four month period.
For the three months ended March 31, 2012, net cash used by operating activities was $5,049 compared to $4,559 at March 31, 2011. In 2012, this was primarily due to an increase in accounts receivable of $9,828. In 2011, the net cash used by operating activities was primarily the result of decreases in accounts payable and accrued expenses offset by a decrease in inventory.
Net cash used in investing activities was $811 compared to $718 at March 31, 2011, which primarily relates to the acquisition of property, plant and equipment in both periods.
Net cash provided by financing activities was $6,549 compared to $17,440 at March 31, 2011, which in both periods relates to borrowings under the Companys credit facility. The reduction in this amount in 2012 is attributable to the prior year reflecting borrowing to finance the Born Free Holdings, LTD acquisition.
Based on the above factors, the net cash increase for the three months ended March 31, 2012 was $491, resulting in a cash balance of $1,706 at March 31, 2012.
Our strategy for funding our business going forward is to generate cash from increased profitability, and where necessary, utilize borrowing availability under our existing lines of credit. . In the case of needing additional cash required to support potential acquisitions, the Company would need to negotiate for increased funding availability with its current bank group or with other similar traditional lenders.
In August 2010, the Company and its subsidiaries entered into a secured credit facility with Bank of America, N.A., as Administrative Agent, and each of the financial institutions as a signatory to the agreement. The agreement was subsequently amended on March 24, 2011, November 9, 2011 and, as described below, on May 11, 2012 (as amended, the Loan Agreement). The Loan Agreement provides for an $80,000 working capital revolving credit facility The amounts outstanding under the revolving credit facility are payable in full upon maturity and the credit facility matures on December 31, 2013. The credit facility under the Loan Agreement is secured by substantially all of the assets of the Company. The amount outstanding on the credit facility at March 31, 2012 was $68,250; our capacity was approximately $71,800.
On May 11, 2012, the Company entered into an amendment (the 2012 Amendment) that revised the Companys financial covenants and extended the maturity date an additional six months to December 31, 2013. In addition, the prior $20,000 accordion feature was removed and two additional pricing tiers based on the leverage covenant performance were added. Also in connection with the 2012 Amendment, the Bank and waived certain events of default that existed on March 31, 2012. The 2012 Amendment is described in more detail in Item 5 of Part II of this report.
Aggregate maturities of long term debt related to this note are as follows:
Year ending December 31: |
|
2012 |
|
$ |
0 |
|
|
|
2013 |
|
68,250 |
| |
|
|
Total |
|
$ |
68,250 |
|
The Companys ability to borrow under the Loan Agreement is subject to its ongoing compliance with a number of financial and other covenants, as revised in the 2012 Amendment, including that (a) the Company and its subsidiaries maintain and earn on a consolidated basis as of the last day of each fiscal quarter, consolidated EBITDA (as defined in the Loan Agreement) for the twelve month period ending on such date equal to or greater than $17,500 beginning with the quarter ending June 30, 2012, and increasing over the remaining term of the Loan Agreement to $23,000 for each quarter ending on or after June 30, 2013; (b) the Company and its subsidiaries maintain a ratio of total funded debt to consolidated EBITDA of not greater than (i) 4.25:1.00 on June 30, 2012, (ii) 3.75:1.00 on September 30, 2012, (iii) 3.50:1.00 on December 31, 2012, and (iv) 3.25:1.00 on March 31, 2013 and thereafter; and (c) the Company and its subsidiaries maintain a fixed charge ratio of at least 1.50:1.00.
The Loan Agreement allows the Company to borrow under the credit facility at LIBOR or at a base rate, plus applicable margins based on the funded debt to EBITDA leverage ratio for the most recent twelve month rolling quarter end. Applicable margins vary between a 200 to 375 basis point spread over LIBOR and between a zero to 175 basis point spread on base rate loans. The Company has also entered into various interest rate swap agreements which effectively fix the interest rates on a portion of the outstanding debt, of which one is still active at March 31, 2012. As of March 31, 2012, the rate on the credit facility dates averaged 4.03%. In addition, the credit facility has an unused line fee based on the unused amount of the credit facility equal to 25 basis points.
The Loan Agreement also contains customary events of default, including a cross default provision and a change of control provision. In the event of a default, all of the obligations of the Company and its subsidiaries under the Loan Agreement may be declared immediately due and payable. For certain events of default relating to insolvency and receivership, all outstanding obligations become due and payable.
The Company believes that it will be able to comply with the financial covenants of the Loan Agreement, as amended by the 2012 Amendment, and will also have sufficient working capital available to it under the Loan Agreement credit facility to meet its cyclical operational cash flow needs.
We believe that our cash flows from operations, cash on hand, and available borrowings will be sufficient to meet our working capital and capital expenditure requirements and provide us with adequate liquidity to meet anticipated operating needs for at least the next twelve months. Our cash requirements for the period beyond that are expected to be met by the continued use of our bank credit facility to meet working capital requirements. However, unforeseen circumstances, such as softness in the retail industry or deterioration in the business of a significant customer, could create a situation where we cannot access all of the available lines of credit due to not having sufficient assets or consolidated EBITDA as required under our Loan Agreement. There is no assurance that we will meet all of our bank covenants in the future, or that our lender will grant waivers if there are covenant violations.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
ITEM 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as of March 31, 2012. Our principal executive officer and principal financial officer have concluded, based on this evaluation, that our controls and procedures were effective as of March 31, 2012.
(b) Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not aware of any such proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, results of operations or financial condition.
Not applicable.
ITEM 2. Unregistered Sales of Equity Securities and Use of Funds.
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
On May 11, 2012, the Company and its wholly-owned subsidiary, Summer Infant (USA), Inc., entered into an amendment (the 2012 Amendment) to its existing amended and restated credit agreement (as amended, the Loan Agreement) with Bank of America, N.A. and the other lenders thereunder (together, the Bank). The maturity date of amounts owed under the Loan Agreement was extended to December 31, 2013 and the financial covenants of the Company were revised as described below. In addition, the prior $20,000 accordion feature was removed and two additional pricing tiers based on the leverage covenant performance were added. Also in connection with the 2012 Amendment, the Bank waived certain events of default that existed at March 31, 2012.
The 2012 Amendment provides that the Company is subject to ongoing compliance with certain financial covenants, including that (a) the Company and its subsidiaries maintain and earn on a consolidated basis as of the last day of each fiscal quarter, consolidated EBITDA (defined below) for the 12-month period ending on such date equal to or greater than $17,500,000 beginning with the quarter ending on June 30, 2012 and increasing over the remaining term of the Loan Agreement to $23,000,000 for each quarter ending on or after June 30, 2013; (b) the Company and its subsidiaries maintain a ratio of consolidated total funded debt to consolidated EBITDA of not greater than (i) 4.25:1.00 on June 30, 2012, (ii) 3.75:1.00 on September 30, 2012, (iii) 3.50:1.00 on December 31, 2012, and (iv) 3.25:1.00 on March 31, 2013 and thereafter; and (c) the Company and its subsidiaries maintain a fixed charge ratio of at least 1.50:1.00.
Consolidated EBITDA for purposes of the Loan Agreement means for any period, for the Company and its subsidiaries on a consolidated basis, an amount equal to consolidated net income (excluding extraordinary gains and extraordinary losses) for such period plus (1) the following to the extent deducted in calculating consolidated net income: (A) consolidated interest charges for such period, (B) the provision for federal, state, local and foreign income taxes payable by the Company and its subsidiaries for such period, (C) depreciation and amortization expense, (D) permitted add-backs, if any, (E) non-cash stock option expense and (F) other non-recurring expenses of the Company and its subsidiaries reducing net income in the relevant period and consented to in writing by the Bank, less (2) the following to the extent included in calculating consolidated net income: (A) federal, state, local and foreign income tax credits of the Company and its subsidiaries for such period and (B) all non-cash items increasing consolidated net income for such period.
The foregoing description of the 2012 Amendment does not purport to be complete and is qualified in its entirety by reference to the full text of the amendment, a copy of which is filed herewith as Exhibit 10.2 and is incorporated by reference herein.
The exhibits listed in the Exhibit Index immediately preceding the exhibits are filed as part of the Quarterly Report on Form 10Q.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Summer Infant, Inc. | |
|
|
|
|
|
|
Date: May 14, 2012 |
By: |
/s/ Jason Macari |
|
|
Jason Macari |
|
|
Chief Executive Officer |
|
|
|
Date: May 14, 2012 |
By: |
/s/ Edmund Schwartz |
|
|
Edmund Schwartz |
|
|
Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
|
Description |
|
|
|
10.1 |
|
Offer Letter from Summer Infant, Inc, to Edmund J. Schwartz (Incorporated by reference to Exhibits to the Registrants Current Report on Form 8-K filed March 8, 2012) |
|
|
|
10.2 |
|
Third Amendment to Amended and Restated Credit Agreement, dated as of May 11, 2012, among the Registrant, Summer Infant (USA), Inc., Bank of American, N.A. and RBS Citizens, National Association |
|
|
|
31.1 |
|
Certification of Chief Executive Officer |
|
|
|
31.2 |
|
Certification of Chief Financial Officer |
|
|
|
32.1 |
|
Section 1350 Certification of Chief Executive Officer |
|
|
|
32.2 |
|
Section 1350 Certification of Chief Financial Officer |
|
|
|
101.INS * |
|
XBRL Instance Document |
|
|
|
101.SCH * |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL * |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF * |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB * |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
|
|
101.PRE * |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
Exhibit 10.2
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this Amendment) is made as of the 11th day of May, 2012, by and among SUMMER INFANT, INC., a Delaware corporation (SI Holdings), and SUMMER INFANT (USA), INC., a Rhode Island corporation (SI USA, and collectively with SI Holdings, the Borrowers and each individually a Borrower), the Lenders identified on the signature pages hereto (collectively, the Lenders and each individually, a Lender), BANK OF AMERICA, N.A., a national banking association, as Swing Line Lender (in such capacity, the Swing Line Lender) and as L/C Issuer (in such capacity, the L/C Issuer), BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the Administrative Agent), and RBS CITIZENS, NATIONAL ASSOCIATION, as Collateral Agent (in such capacity, the Collateral Agent).
RECITALS:
WHEREAS, the Lenders, the Swing Line Lender, the L/C Issuer, the Administrative Agent, the Collateral Agent and the Borrowers are parties to a certain Amended and Restated Credit Agreement dated as of August 2, 2010, as amended by a certain First Amendment to Amended and Restated Credit Agreement dated as of March 24, 2011, and a certain Second Amendment to Amended and Restated Credit Agreement dated as of November 9, 2011 (as so amended, the Credit Agreement), which Credit Agreement is incorporated herein by reference and made a part hereof; and
WHEREAS, the Borrowers have acknowledged that certain Events of Default exist under the Credit Agreement on the date hereof as described on Annex A attached hereto and made a part hereof (the Existing Events of Default); and
WHEREAS, the Borrowers have applied to the Lenders, the Swing Line Lender, the L/C Issuer and the Administrative Agent (collectively, the Lender Parties) to make certain amendments to the Credit Agreement and to waive the Existing Events of Default; and
WHEREAS, the Lender Parties are willing to effect such amendments and grant such waivers subject to the execution and delivery of an agreement in form and substance satisfactory to the Lender Parties to evidence such amendments and waivers; and
WHEREAS, the Lender Parties and the Borrowers desire to amend the Credit Agreement in the manner set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree, effective as of the Third Amendment Closing Date (as hereinafter defined), as follows:
1. Definitions. (a) Capitalized terms used herein that are not otherwise defined herein shall have the identical meanings given to such terms in the Credit Agreement.
(b) The terms Applicable Rate, Consolidated EBITDA, Interest Payment Date, Maturity Date and Permitted Acquisitions appearing in Section 1.01 of the Credit Agreement are hereby amended to read in their entirety, respectively, as follows:
Applicable Rate means, from time to time, the following percentages per annum, based upon the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by Administrative Agent pursuant to Section 6.02(a):
Applicable Rate
Pricing |
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Consolidated |
|
Applicable Rate for |
|
Applicable Rate |
|
1 |
|
<2.50:1.00 |
|
2.000 |
% |
0.000 |
% |
2 |
|
>2.50:1.00 but <3.00:1.00 |
|
2.500 |
% |
0.500 |
% |
3 |
|
>3.00:1.00 but <3.25:1.00 |
|
3.000 |
% |
1.000 |
% |
4 |
|
>3.25:1.00 but <3.50:1.00 |
|
3.375 |
% |
1.375 |
% |
5 |
|
>3.50:100 |
|
3.750 |
% |
1.750 |
% |
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day of the month immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(a); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then, upon the request of the Required Lenders, Pricing Level 5 shall apply as of the first Business Day of the month following the date such Compliance Certificate was required to have been delivered. Notwithstanding the foregoing, the Applicable Rate in effect from April 1, 2012, until the Applicable Rate is determined in accordance with the preceding sentence based on the Compliance Certificate delivered for the period ending June 30, 2012, shall be determined based upon Pricing Level 4.
Consolidated EBITDA means, for any period, for Borrowers and their Subsidiaries on a consolidated basis, an amount equal to Consolidated Net Income for such period plus (a) the following (without duplication) to the extent deducted in calculating such Consolidated Net Income: (i) Consolidated Interest Charges for such period, (ii) provision for Federal, state, local and foreign income taxes payable by the Borrowers and their Subsidiaries for such period, (iii) depreciation and amortization expense, (iv) Permitted Add-backs, if any, for such period, (v) non-cash stock option expense, and (vi) other non-recurring expenses of Borrowers and their Subsidiaries reducing such Consolidated Net Income in such period, which have been approved and consented to in writing by the Required Lenders as constituting permissible add-back adjustments in the calculation of Consolidated EBITDA, and minus (b) the following to the extent included in calculating such Consolidated Net Income: (i) Federal, state, local
and foreign income tax credits of Borrowers and their Subsidiaries for such period and (ii) all non-cash items increasing Consolidated Net Income for such period.
Interest Payment Date means:
(a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds one month, the respective dates that fall every month after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan (including a Swing Line Loan), the last Business Day of each calendar month and the Maturity Date.
Maturity Date means December 31, 2013; provided, however, that if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.
Permitted Acquisitions means (a) the Born Free Acquisition, and (b) other Investments consisting of an Acquisition or series of Acquisitions by Borrowers during the term of this Agreement which is or are consented to in writing by Required Lenders in their sole discretion; provided in all cases that (i) the property and assets acquired (or the property and assets of the Person acquired) in such Acquisition is identical, similar, complementary or ancillary to the line of business as the Borrowers and their Subsidiaries were engaged in on the Closing Date, (ii) Administrative Agent shall have received all items in respect of the Equity Interests or property acquired in such Acquisition required to be delivered by the terms of the Collateral Documents, (iii) in the case of an Acquisition of the Equity Interests of another Person, the board of directors (or other comparable governing body) of such other Person shall have duly approved such Acquisition, (iv) the Borrower Representative shall have delivered to Administrative Agent a pro forma Compliance Certificate demonstrating that, upon giving effect to such Acquisition on a pro forma basis, Borrowers would be in compliance with the financial covenants set forth in Section 6.12 as of the most recent fiscal quarter for which Borrowers have delivered financial statements pursuant to Section 6.01(a) or Section 6.01(b), as applicable, and no other Default has occurred and is continuing or would be caused by such Acquisition, and (v) the representations and warranties made by Borrowers in each Loan Document shall be true and correct in all material respects at and as if made as of the date of such Acquisition (after giving effect thereto) except to the extent such representations and warranties expressly relate to an earlier date.
(c) The following new definitions are hereby added to Section 1.01 of the Credit Agreement in the appropriate alphabetical order:
Third Amendment means that certain Third Amendment to Amended and Restated Credit Agreement dated as of May 11, 2012, by and among the Borrowers, the Lenders, the Swing Line Lender, the L/C Issuer, the Administrative Agent and the Collateral Agent.
Third Amendment Closing Date means May 11, 2012.
2. Amendments to Article II.
Section 2.14 of the Credit Agreement is hereby amended to read in its entirety as follows:
2.14. Increase in Commitments. SECTION 2.14 IS INTENTIONALLY DELETED FROM THIS AGREEMENT EFFECTIVE AS OF THE THIRD AMENDMENT CLOSING DATE.
3. Amendments to Article VI.
(a) Section 6.01 of the Credit Agreement is hereby amended to read in its entirety as follows:
6.01. Financial Statements. Deliver to Administrative Agent a sufficient number of copies for delivery by Administrative Agent to each Lender, in form and detail satisfactory to Administrative Agent and the Required Lenders:
(a) as soon as available, but in any event within one hundred twenty (120) days of the end of each fiscal year of SI Holdings (or, if earlier, fifteen (15) days after the date required to be filed with the SEC), audited balance sheets and statements of profit and loss and cash flows, retained earnings, reconciliation of net worth and source and application of funds for such fiscal year for SI Holdings and its Subsidiaries, each prepared in accordance with GAAP consistently applied, on a consolidated and consolidating basis, in reasonable detail by independent certified public accountants selected by the Borrowers and acceptable to Administrative Agent, showing SI Holdings and its Subsidiaries consolidated and consolidating financial condition at the close of such fiscal year and the results of operations during such year, together with a certificate signed by an officer of the Borrowers, certifying Borrowers compliance, or lack thereof, with the financial covenants described in Section 6.12 hereof, and a schedule showing the calculations used to determine such compliance (or lack thereof);
(b) as soon as available, but in any event within forty-five (45) days after the end of each fiscal quarter in each fiscal year of SI Holdings (or, if earlier, five (5) days after the date required to be filed with the SEC), (i) consolidated balance sheets and statements of profit and loss and cash flows, retained earnings, reconciliation of net worth and source and application of funds for such fiscal year, each prepared in reasonable detail in accordance with GAAP, on a consolidated and consolidating basis, consistently applied, and consistent in format with the financial statements furnished to Administrative Agent in connection with the Borrowers loan application, certified by the President or Chief Financial Officer of SI Holdings as fairly representing the financial position of the Borrowers and their Subsidiaries, such balance sheets to be as of the close of such quarter and such other statements to be for the period from the beginning of the then current fiscal year to the end of such quarter in each case subject to normal audit and year-end adjustments; and (ii) a quarterly schedule of revenues, gross margin and contribution margin by product segment in form acceptable to the Administrative Agent;
(c) within thirty (30) days after the beginning of each fiscal year, a management prepared budget for the then fiscal year in form and substance reasonably satisfactory to Administrative Agent, prepared on a consolidated and consolidating basis, which budget shall include, without limitation, projected covenant compliance, projected profit and loss and cash flow statements, balance sheets and a capital expenditure budget; and
(d) as soon as available, but in any event within ten (10) days after the end of each calendar month, a monthly cash flow report, accounts receivable report, accounts payable report and inventory report as of the last day of such calendar month, in form acceptable to the Administrative Agent.
(b) Section 6.10 of the Credit Agreement is hereby amended by adding the following at the end thereof:
In addition and without limiting or prejudicing the rights of the Administrative Agent or the Lenders under either Section 6.02(g) hereof or the foregoing provisions of this Section 6.10, the Administrative Agent and its agents and independent contractors may perform a field exam of Borrowers and the Collateral, at Borrowers sole expense, within forty-five (45) days after the Third Amendment Closing Date, and Borrowers shall cooperate with Administrative Agent and such Person in the conducting and completion of such field exam.
(c) Section 6.12 of the Credit Agreement is hereby amended to read in its entirety as follows:
6.12 Financial Covenants.
(a) Consolidated EBITDA. Maintain and earn on a consolidated basis as of the last day of each fiscal quarter, Consolidated EBITDA for the twelve-month period ending on each such date equal to or greater than the following:
For Each Fiscal |
|
Consolidated EBITDA to be |
| |
|
|
|
| |
June 30, 2012 |
|
$ |
17,500,000 |
|
|
|
|
| |
September 30, 2012 |
|
$ |
18,500,000 |
|
|
|
|
| |
December 31, 2012 |
|
$ |
20,500,000 |
|
|
|
|
| |
March 31, 2013 |
|
$ |
22,000,000 |
|
|
|
|
| |
June 30, 2013, and the last day of each fiscal quarter thereafter |
|
$ |
23,000,000 |
|
(b) Consolidated Leverage Ratio. Maintain a Consolidated Leverage Ratio not exceeding (i) 4.25:1.00 on June 30, 2012, (ii) 3.75:1.00 on September 30, 2012, (iii) 3.50:1.00 on December 31, 2012, and (iv) 3.25:1.00 on March 31, 2013, and on the last day of each fiscal quarter thereafter. This ratio will be calculated as of the last day of each fiscal quarter for which this Agreement requires Borrowers to deliver financial statements, using the results of the twelve-month period ending on the last day of such fiscal quarter.
(c) Basic Fixed Charge Coverage Ratio. Maintain a Basic Fixed Charge Coverage Ratio of at least 1.50:1.00. This ratio will be calculated as of the last day of each fiscal quarter for which this Agreement requires Borrowers to deliver financial statements, using the results of the twelve-month period ending on the last day of such fiscal quarter. The current portion of long-term liabilities will be measured as of the date twelve (12) months prior to the current financial statement.
4. Waiver of Existing Events of Default. In consideration of the Borrowers execution and delivery of this Amendment and the Borrowers agreements herein, the Lenders and the Administrative Agent hereby waive the Existing Events of Defaults through and as of the dates of such Existing Events of Default indicated on Annex A. The waiver set forth herein is strictly limited to the Existing Events of Defaults as of such dates and is not intended to constitute a waiver of any Event of Default which may exist or arise after the respective dates set forth in Annex A, including without limitation, any Events of Default of a similar nature which may occur or arise after the dates set forth in Annex A. Nothing contained in the foregoing waiver is intended to constitute or evidence a course of dealing at variance with the specific terms of the Loan Documents. For the avoidance of doubt, the Existing Events of Defaults shall be deemed waived as of the Third Amendment Closing Date, and the Borrowers shall not be deemed to be in breach, default or violation of or under the Loan Agreement as of such date by reason of such Existing Events of Defaults.
5. Amendments of Certain Schedules and Exhibits.
Exhibit D to the Credit Agreement is hereby amended to read in its entirety in the form of Annex B attached hereto and made a part hereof.
6. Miscellaneous Provisions.
(a) The Borrowers hereby represent and warrant that (i) except for the Existing Events of Default waived herein, no Default or Event of Default exists as of the Third Amendment Closing Date and (ii) on the Third Amendment Closing Date, after giving effect to this Amendment, all representations and warranties (other than those representations made as of a specified date) contained in the Credit Agreement and in the other Loan Documents are true and correct in all material respects.
(b) The Borrowers hereby represent and warrant that (i) each of the Borrowers is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and has the corporate power, and has been duly authorized by all requisite action, to
execute and deliver this Amendment and to perform its obligations hereunder, (ii) this Amendment has been duly executed and delivered by each of the Borrowers, (iii) each of this Amendment and the Credit Agreement, as amended hereby, does not conflict with any law, agreement or obligation by which any Borrower is bound, and (iv) this Amendment and the Credit Agreement (as amended by this Amendment) constitute the legal, valid and binding obligations of each Borrower, enforceable against such Borrower in accordance with their respective terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar law generally affecting creditors rights and by equitable principles (regardless of whether enforcement is sought at equity or at law).
(c) Each of the Borrowers hereby acknowledges, agrees and affirms (a) its obligations under the Credit Agreement and the other Loan Documents, (b) the grant of the Liens pursuant to the Collateral Documents, and (c) that such Liens created and granted are valid and continuing and secure the Obligations in accordance with the terms thereof, in each case after giving effect to this Amendment.
7. Conditions to Amendment. The effectiveness of this Amendment shall be subject to the satisfaction of the following conditions precedent on or before the Third Amendment Closing Date:
(a) No Default. Except for the Existing Events of Default waived herein, no Default or Event of Default shall have occurred and be continuing.
(b) Closing Requirements. The Borrowers shall have delivered to the Administrative Agent a fully executed counterpart of this Amendment as executed by all Lenders and Borrowers named hereto as signatories, in each case in form and substance acceptable to the Administrative Agent.
(c) No Material Adverse Effect. No Material Adverse Effect shall exist, as reasonably determined by the Administrative Agent, since the date of the end of the most recent fiscal interim period for which the Borrowers financial statements have been delivered to the Administrative Agent.
(d) Representations and Warranties. The representations and warranties of the Borrowers in this Amendment and the representations and warranties of the Borrowers set forth in the Credit Agreement, as amended hereby, and the other Loan Documents shall be true and correct in all material respects with the same effect as if made on the Third Amendment Closing Date (except to the extent stated to relate to a specific earlier date, in which case such representations and warranties shall be true and correct in all material respects as of such earlier date, and except that each representation and warranty set forth in Section 5.05 of the Credit Agreement shall be deemed to refer to the most recent annual or quarterly financial statements, or projections, furnished by the Borrowers).
(e) Fees. The Borrowers shall have paid all fees and expenses required to be paid pursuant to Section 8 of this Amendment.
8. Fees and Expenses. (a) The Borrowers shall on the Third Amendment Closing Date pay to the Administrative Agent, for the account of each Lender (to be paid to and shared by the Lenders pro rata based on their respective Commitments), an Amendment Fee calculated as twelve and one-half basis points multiplied by the Aggregate Commitments. Upon receipt of evidence that all parties hereto have executed this Amendment, the Administrative Agent is hereby authorized to debit any accounts of the Borrowers on the date hereof to effect such payment
(b) The Borrowers shall pay all reasonable expenses incurred by the Administrative Agent in the drafting, negotiation and closing of the documents and transactions contemplated hereby, including the reasonable fees and disbursements of the Administrative Agents counsel.
9. References in Loan Documents. All references to the Credit Agreement in the Notes and the Collateral Documents shall be deemed to refer to the Credit Agreement, as amended by this Amendment and any other amendments which may be executed. This Amendment shall constitute a Loan Document as defined in the Credit Agreement.
10. No Further Amendments. Except for the amendments set forth herein and in any other agreement executed by the parties on the date hereof, the text of the Credit Agreement, Security Agreement and all other Loan Documents shall remain unchanged and in full force and effect, including, without limitation, the provisions of Section 10.15 thereof concerning the parties waiver of jury trial. No consent or waiver by any of the Lender Parties under the Loan Agreement, Security Agreement or any other Loan Document is granted or intended except as expressly set forth herein or therein (and such consent or waiver is limited to the specific matters described herein as of the date hereof), and the Lender Parties expressly reserve the right to require strict compliance with the terms of each of the Loan Agreement and Security Agreement, as amended hereby, and the other Loan Documents in all respects. The consents and amendments agreed to herein shall not constitute a modification of, or a course of dealing at variance with, the Credit Agreement or Security Agreement such as to require further notice by the Lender Parties to require strict compliance with the terms of the Credit Agreement, Security Agreement and the other Loan Documents in the future.
11. Borrowers Further Agreements. (a) In consideration of the agreements of the Administrative Agent and the Lenders contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Borrowers on behalf of itself and its successors, assigns, and other legal representatives hereby absolutely, unconditionally and irrevocably release, remise and forever discharge the Administrative Agent, each Lender, all Lender Parties, the Collateral Agent, the Lead Arranger and their respective successors and assigns, and their respective Affiliates, subsidiaries, predecessors, directors, officers, attorneys, employees, agents and other representatives (the Administrative Agent, each Lender and all such other Persons described above being hereinafter referred to collectively as the Releasees, and individually as a Releasee), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements, promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses, rights of set-off, demands and liabilities whatsoever (individually, a Claim, and collectively, Claims) of every name and nature, known or unknown, suspected or
unsuspected, both at law and in equity, which such Borrower, or any of its respective administrators, successors, assigns, and other legal representatives, may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon, or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the day and date of this Amendment for or on account of, or in relation to, or in any way in connection with any of the Credit Agreement, the other Loan Documents or this Amendment or transactions thereunder or hereunder related thereto or hereto.
(b) Each of the Borrowers understands, acknowledges and agrees that the release set forth above may be pleaded as a full and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which may be instituted, prosecuted or attempted in breach of the provisions of such release.
(c) Each of the Borrowers agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release set forth above.
12. Applicable Law. THIS AMENDMENT SHALL BE DEEMED TO BE MADE PURSUANT TO THE LAWS OF THE STATE OF RHODE ISLAND WITH RESPECT TO AGREEMENTS MADE AND TO BE PERFORMED WHOLLY IN THE STATE OF RHODE ISLAND AND SHALL BE CONSTRUED, INTERPRETED, PERFORMED AND ENFORCED IN ACCORDANCE THEREWITH.
13. Captions. The captions in this Amendment are for convenience of reference only and shall not define or limit the provisions hereof.
14. Counterparts. This Amendment may be executed in any number of counterparts, and by the different parties hereto on separate counterparts, each of which when executed and delivered shall be an original, but all of which together shall constitute one and the same instrument. In making proof of this Amendment, it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement of this Amendment is sought. Delivery of an executed signature page of this Amendment by facsimile transmission shall be deemed to be effective as an in-hand delivery of an original executed counterpart hereof.
15. Reaffirmation. Except as modified and amended hereby, the Credit Agreement shall remain in full force and effect and is in all other respects hereby ratified and confirmed by the Borrowers, the Lenders, the Administrative Agent and all other Persons executing this Amendment.
16. FINAL AGREEMENT. BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT: (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM
SHEET OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.
(The next page is the first signature page.)
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written.
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ADMINISTRATIVE AGENT: | ||
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BANK OF AMERICA, N.A., as Administrative Agent | ||
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By: |
/s/ Brenda H. Little | |
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Name: |
Brenda H. Little |
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Title: |
Vice President |
[Summer Infant/Third Amendment to A&R Credit Agreement]
(Signatures continued on next page.)
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LENDER: | ||
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BANK OF AMERICA, N.A., as a Lender, L/C Issuer and Swing Line Lender | ||
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By: |
/s/ Donald C. McQueen | |
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Name: |
Donald C. McQueen |
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Title: |
Senior Vice President |
[Summer Infant/Third Amendment to A&R Credit Agreement]
(Signatures continued on next page.)
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LENDER AND COLLATERAL AGENT: | ||
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RBS CITIZENS, NATIONAL ASSOCIATION, as a Lender and Collateral Agent | ||
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By: |
/s/ Robert R. Kent | |
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Name: |
Robert R. Kent |
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Title: |
Senior Vice President |
[Summer Infant/Third Amendment to A&R Credit Agreement]
(Signatures continued on next page.)
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LENDER: | ||
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BANK RHODE ISLAND, as a Lender | ||
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By: |
/s/ W. Timothy Coggins | |
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Name: |
W. Timothy Coggins |
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Title: |
SVP |
[Summer Infant/Third Amendment to A&R Credit Agreement]
(Signatures continued on next page.)
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LENDER: | ||
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender | ||
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By: |
/s/ Daniel M. Grondin | |
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Name: |
Daniel M. Grondin |
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Title: |
Senior V.P. |
[Summer Infant/Third Amendment to A&R Credit Agreement]
(Signatures continued on next page.)
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BORROWERS: | |
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SUMMER INFANT (USA), INC. | |
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By: |
/s/ Edmund Schwartz |
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Edmund Schwartz |
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Interim Chief Financial Officer |
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SUMMER INFANT, INC. | |
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By: |
/s/ Edmund Schwartz |
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Edmund Schwartz |
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Interim Chief Financial Officer |
[Summer Infant/Third Amendment to A&R Credit Agreement]
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jason Macari, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Jason Macari |
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Dated: May 14, 2012 |
Jason Macari |
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Chief Executive Officer |
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Edmund Schwartz, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Summer Infant, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material aspects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter(the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
/s/ Edmund Schwartz |
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Dated: May 14, 2012 |
Edmund Schwartz |
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Chief Financial Officer |
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Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Summer Infant, Inc. (the Company) on Form 10-Q for the period ending March 31, 2012 (the Report), as filed with the Securities and Exchange Commission on the date hereof, I, Jason Macari, Chief Executive Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Jason Macari |
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Dated: May 14, 2012 |
Jason Macari |
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Chief Executive Officer |
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Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Summer Infant, Inc. (the Company) on Form 10-Q for the period ending March 31, 2012 (the Report), as filed with the Securities and Exchange Commission on the date hereof, I, Joseph Driscoll, Chief Financial Officer of the Company, certify, to my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section 13 (a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Edmund Schwartz |
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Dated: May 14, 2012 |
Edmund Schwartz |
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Chief Financial Officer |
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DEBT
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Mar. 31, 2012
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DEBT |
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